[NGW Magazine] Turkey's Tempting, Onshore Gas
Tight gas prospects deep under European Turkey (Thrace) could produce 1bn ft³/d (10bn m³/yr) by 2025 if the capital is available to develop them, according to TransAtlantic Petroleum, a US independent active in the region for over a decade.
TransAtlantic chairman Malone Mitchell told NGW Magazine March 23 that his company in 2010 acquired Turkey’s largest privately-owned gas producer, selling off much of the shallow-level rights last year to Valeura Energy.
Canada’s Valeura made a significant tight gas/condensate discovery in late 2017 on acreage adjacent to, but never owned by, TransAtlantic. In early 2017 Norwegian Statoil farmed into two of Valeura’s Banarli licences onshore Thrace for a 50% stake in the deep rights only, below 2,500 metres.
Valeura ran four production tests in late 2017 from eight fracturing stages at its 4,196-metre deep Yamalik-1 natural gas-condensate discovery on Banarli, which flowed 2.9mn ft³/d over 24 hours. In February, its net 50% interest in the Thrace acreage was independently audited as having 5.2 trillion ft³ of risked mean prospective resources of natural gas, and 165mn barrels of condensate.
TransAtlantic’s gas mainly in Thrace
New York and Toronto-listed TransAtlantic Petroleum’s largest (40%) shareholder is US family-owned Riata corporate group which also has interests in US drilling contracting, real estate, plus the US producer Longfellow Energy.
The latter spun off its Nemaha subsidiary, which owns shale oil and gas tracts in Oklahoma, to South Korean’s SK Energy for an undisclosed sum, in a deal announced March 21. TransAtlantic has all the non-US upstream interests, now all in Turkey, plus one Bulgarian licence.
Oil produced in southeast Turkey accounted for 97% of TransAtlantic’s net 2017 production of 2,799 barrels of oil equivalent/day, while 3% was made up of 1.03mn ft³/d gas produced in Thrace. It made a net 2017 loss from continuing operations of $23.9mn, roughly the same as the year before.
All the gas production is in Thrace (European Turkey) except for a small gas field near the Syrian border on TransAtlantic’s [Turkish] Bakuk licence that was shut in as a precaution, but the firm plans to start it up again to meet local demand. Once a pipe has been built to bring Iraqi gas into the national transmission system (NTS), a full-field development at Bakuk can begin.
Big assets need a big asset sheet
TransAtlantic has some 50,000 net acres in the core of the onshore Thrace basin and, subject to financing, it is looking to drill up to three wells on its Temrez licence there, late this year and early next.
“We’re a very small company,” Mitchell told NGW while in London: “We have big company assets, but we need a bigger company asset sheet to develop them.
“We are looking for a whole company solution to the entire portfolio. We want to sell or merge. We want a stronger financial owner that is less constrained,” he adds. It is difficult to raise debt financing in the US where banks do not understand the low political risk in Turkey, he said.
Mitchell argues that, under US Securities & Exchange Commission rules, TransAtlantic must list zero 1P to 3P gas reserves in Thrace out to end-2018 – and so a valuation per net acre will be the most appropriate metric for judging TransAtlantic’s value until 2019 by when it may demonstrate to SEC standards any reserves.
But TransAtlantic’s March 22 presentation to analysts argues that its acreage is worth as much as Valeura’s, which it puts at $6,196/acre net to Valeura, based on an estimate of the latter’s roughly C$417mn (US$310mn) market capitalisation.
TransAtlantic provided a best estimate recoverable figure of some 3 trillion ft³ gas and 70mn b condensate for its own Temrez licence in Thrace, in its 2017 annual results on March 21.
Of the planned three-well drilling programme, two would be drilled in 4Q 2018 with the third probably in early 2019. The initial deep-level Thrace wells are expected to cost $6mn completed but, post-2019, could get cheaper over time: down to "about $4.5mn apiece.”
“These are not new rocks,” says Mitchell: “There are 900 wells that have produced in these same rocks on the rims of the basin. You just go down into the centre of the basin where it’s under extremely high pressure and high temperature. We have wells on our Temrez block that have penetrated the entire section, so uniquely in that area we know the total thickness of sand.” When it first built pipe and tapped into the NTS back in 2010, the approvals process “took a while,” sighs Mitchell.
Now TransAtlantic is at home with the Turkish regulatory environment: “I have drilled hundreds of wells in Turkey, and in Oklahoma, and thousands in Texas. I will tell you: Turkey is better than either Texas and Oklahoma and has been for the decade I’ve been in Turkey. We have bid against the state oil company [TPAO], against large family conglomerates. We have never felt we were treated unfairly over licence awards or the legal system.”
Most staff are locals and its country manager since 2006 previously was Arco’s country manager.
How big could a development get and cost?
If the planned three-well drilling campaign at the turn of this year succeeds, TransAtlantic expects late 2019 to move to a “continuous production programme” – with as much development from wellpads as possible, to keep costs and environmental impact down. By end-2020 with this slow start, TransAtlantic expects production may still only be 1mn m³/d (35mn ft³/d).
“Very quickly then, after we’ve established the spacing of wells, and optimal drill pads, we would expect that the company would want to ramp up – based on our experience in the US – to ten drilling rigs. Over a number of years, we believe you could ultimately deliver from our acreage as much as 1bn ft³/d. But that takes a company that has the capital able to deploy ten rigs.”
As well as rig costs, Mitchell notes that that wells would require workover, plus compression facilities, requiring hundreds of millions of dollars of investment in infrastructure. He says that 1bn ft³/d production level would not be achieved until the late 2020s.
But he sees a ready market, given TransAtlantic acreage is just 20 km from the largest gas-fired power plant in Turkey and the NTS and that there is an existing 10-12 inch gas pipe system across the assets (one that may need expanding to 18-in, at a cost of $6mn).
Valeura concurs, having earned C$6.61/’000 ft³ (US$5.30/mn Btu) in 4Q 2017 in Thrace. As gas production potentially grows beyond the limit of its owned infrastructure, the Calgary firm sees several options: it could tie into a regular Botas pipeline, another Botas pipe that also connects to Greece, or sell directly to a local gas distributor that currently offtakes from Botas.
Turkey’s Gas Market
Turkey consumed 53.5bn m³ of natural gas in 2017, up 16% on the previous year, and well over 99% of that was net imports. Domestic production is believed to be less than 0.4bn m³.
The country’s overall energy import bill, which includes gas, reached $37.19bn last year, up 37%, and is expected to top $40bn in 2018, according to Turkish Statistical Institute chief Volkan Ozdemir. Turkey wants to boost indigenous energy production so that it is less reliant on imports. One aspect of that policy is that domestic coal’s share of Turkish electricity generation has risen steeply in recent years, according to an OIES study.
The government’s Vision 2023 policy aims to increase the share of renewables in the electricity mix to 30%, raise coal to 30%, raise nuclear to 10%, but reduce gas’s share to 30%. But the more domestic gas, the merrier.